Retiree health benefits will cost O.C. agencies $1 billion

Orange County and its cities are on the hook for nearly $1 billion in long-term costs for health benefits for retired public employees, an Orange County Register analysis has found.

Almost all municipal retirees receive some health benefits until they die. But most Orange County cities are paying the bare minimum to cover the benefits and allowing the 30-year cost– called the unfunded liability – to grow untouched.

"They are kicking the can down the street. It's going to start affecting their budgets," said county Supervisor John Moorlach, an outspoken supporter of pension reform.

Officials in Santa Ana, one of 17 cities paying the minimum, said they are trying to determine how to attack the city's $103.8 million unfunded debt.

"We're still trying to get our hands around the liability and having discussions to see what will be our long-term strategy," said Francisco Gutierrez, city finance director. "It can build up pretty quick."

The Register's analysis, based chiefly on financial documents filed with the Governmental Accounting Standards Board, found:

• Orange County and its cities paid nearly $50 million in fiscal 2009-10 for retiree health care. The benefits are on top of the tax-funded pensions that give many government retirees most – if not all – of their salaries for life. For instance, sheriff-turned-felon Mike Carona gets $2,184 a year in health care on top of his $217,457 annual pension. Former assistant sheriff Charles Walters gets $5,466 in health care – the maximum for the county of Orange – plus his $231,990 pension.

• Retiree health benefits vary from city to city, and from union to union. Benefits range from a maximum of $15,892 a year in Anaheim to $632 annually in San Juan Capistrano. The money is intended to help retirees pay for health insurance coverage. Kristine Ridge, Anaheim human resources director and acting finance director, said only six retirees qualify for the maximum benefit in her city and reforms make it unlikely that any more will be eligible. Throughout the county, public safety retirees tend to get the highest health benefits. In Fountain Valley, all retired department heads and police get health care for life, while general employees get lifetime care only if they were hired before 1986.

• Westminster, Fountain Valley and Placentia have thelargestretiree health care debt, per capita. All three cities are just paying the minimum as the debt grows. "It's a major concern for us. We're working with our labor groups to try and work out a plan," said Westminster Finance Director Paul Espinoza. Four South County cities have few if any retirees and are not required by the Governmental Accounting Standards Board to calculate their long-term costs. Two other cities, Laguna Hills and Villa Park, do not offer retiree medical benefits.

Generous health benefits, like pensions, are completely legal and were created during stable economic years. In the past, retiree health care benefits have been used as a chip during employee negotiations, sometimes offered in exchange for lower pay raises.

In both public and private sectors, agencies and businesses are not required to provide retiree health care. They can eliminate or reduce benefits, unless they have made specific assurances, according to the U.S. Department of Labor. Private sector retiree health benefits are generally not as generous as in the public sector; the average private worker does not receive any retiree health care, said Paul Fronstin, director of health research at the Employee Benefits Research Institute.

"The public sector is more heavily unionized," Fronstin said.

Nick Berardino, head of the Orange County Employees Association, said the solution is not to eliminate benefits in the public sector, but to raise them in the private sector. Berardino said the taxpayer saves money in the long run by ensuring that retired employees don't end up in expensive emergency rooms.

“The corporations that are making millions in profits ought to be joining in,” Berardino said.

While health costs are but a fraction of the post-employment benefits, they are another strain on the budgets. For instance, the County of Orange has an unfunded liability of $408.3 million for retiree health care and nearly $3.7 billion for pensions.

"It is (still) significant. It's an obligation the cities have incurred and who pays for it? The taxpayers," said Steven Frates, director of research at the Davenport Institute at Pepperdine University.

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